What next for the economy? August 18, 2023

0:07Welcome to Motley Fool Money, the podcast that no longer reports youth unemployment figures. I am Scott Phillips from The Motley Fool. He is Andrew Page from strawman.com. Mr. Page, g'day. Hello. How are you? I'm pretty good. Pretty good. How are you? Well, we're recording for Thursday morning, mate, the 17th of August. I'm a bit of a downer, I have to say. The Aussie girls did us absolutely proud, but couldn't quite get over the poms last night. So there's a bit of a pall across much of sport-loving Australia this morning. But one more game to go. They're playing on Saturday night. and see if they can knock off the Swedes and take third place.

0:46But, mate, the fairy tale was there for the taking, wasn't it? Look, they did so well. Didn't they? And the goal from Kerr last night was just magic. So good. Yeah. So, yeah, look, you know, proud of the girls, proud of the team. Yeah. You know, there's always next time. There is always next time and, well, four years' time. In the meantime, hopefully, things will continue to improve. Just remarkable. So bloody likeable, can I say? like compared to some of the sports you watch there was no diving there was no carry on there was kind of just yeah they got up they got on with it they had a smile you think you know i don't know it's it they i think they gave a bit of a lesson of what professional sports actually could be uh i think you can't you find yourself watching the game going you know what they seem that's like you know pretty good people playing the game playing the sport the best uh in the right spirits like that that's kind of what sport kind of could be which is which is pretty impressive yeah yeah it could be a male versus female thing there as that maybe the guys don't sort of present the best sort of parts of nature on the sporting world.

1:45I don't know. Maybe professionalism gets worse eventually over time. Maybe it's the early days of kind of, you know, higher profile professionalism in the soccer, women's soccer anyway. Maybe over time it gets as bad as the blokes. But fingers crossed anyway. Just I thought it was, yeah, a really cool team to follow. You're glad your kids are watching it. All those things are just really, really nice. Yeah, couldn't quite get it done, but they should hold their heads very, very high. Absolutely. Yep, I agree. So let's get back onto, well, I was going to say back onto a positive frame of mind. And then I was going to talk about China.

2:15So let's kick that off. Before I do that, mate, I am wondering what strawman.com is. And I just kind of ignore me if I don't ask. So do you mind if I just quickly ask you so we can get on with the rest of the podcast what strawman is? Please, yeah. Yeah, let's get it out of the way. Yeah, for sure. Yeah. No, we're a private online investment club. Is that right? Yeah. Oh, can I say too, now that you've asked, I'm going to shill for a second. That's not what it is. We are reopened. We only do it twice a year. Okay. So if you want to network with some pretty savvy private investors, now's your chance.

2:45I thought I let you have a plug last week. That was the pre-plug. This is the actual plug. Okay. And the post-plug next week, I assume. Post-plug next week. Very good. And then I'll shut up for six months. There we go. Strawman.com. Hey, let's go into some less awesome news. Two bits of interesting news out of China over the last week, mate. Let's start with the macro as we do. Chinese deflation. Did we talk about that last week? I don't know if we did, but prices in China are now down across the board. And their imports from Southeast Asian trading partners down double digit percentage points month on month.

3:21It sounds like an economy screeching to a mighty halt, doesn't it? It does. I mean, look, it's such a difficult... Look, macro is always a difficult thing to wrap your head around and Chinese macro even more so. So one, you've got some question marks over the data. And two, it's a little bit of a different beast. It's often called this command economy where, you know, it is easier for the powers that be to make that happen. That's right. If you want to have a community degree, you just say to people, make more things than they do. Make it happen. And that's not necessarily a good thing, I want to say.

3:58I know it can feel very good. And it is very good if you have sort of like the benevolent, all wise dictator, then there's actually probably the best system that there is. But yeah, so what do I think of it? I think that we know that China went pretty aggressive on the lockdowns with COVID. And that sort of knocked all of the figures and activity for Six for a little bit. But it was temporary. And the rest of the world sort of opened up earlier and we're a bit of a malaise. but what we kept on hearing from the boffins was when china reopens and let's remember this is the second largest economy in the world they're an absolute monster economically you know and so much of the world's goods are produced there it's just sort of like well when that happens that will be the thing that helps catalyze everything and and and back we go which makes sense which makes and wrong except for the if slash when statement, right?

5:01Because the world's second largest economy going back to historical rates of growth, not only percentage terms, but when you are that big, the dollar value of that growth, it is the biggest swing factor globally, right? Oh, and as Aussies, this is particularly poignant. I mean, our largest trading partner by a pretty decent margin, mind you, too. So it's sort of like it's particularly important for us. So it looks as though that hasn't happened. Has it not happened or has it happened and then gone away again after kind of they fell back into the slump? I'm not entirely sure. I haven't been watching that closely.

5:41Was there a recovery and then a slowdown or it just hasn't happened at all? I think there's been – I mean, from everyone being locked into their apartments to not, then, yes, it's better than that. True. But it's not back to sort of the levels, I think, that most people were sort of hoping. That's being reflected in the yields that are being sort of traded over there. You know, youth unemployed. Look, no one stops reporting figures that are good. Let me put it that way. And for them to sort of say, actually, and it was more than 20 % on reported figures. So I don't want to be too conspiratorial, but you know there's there's often allegations of figures that are massaged i don't think that's probably true to us i know i don't think it's conspiracy by the way i think i think it's reasonably well the only i would say about china it does go back to your first point which is when you can make anything happen you want to have happen you don't need to make up the numbers you just create the activity to fill it so it's kind of like you know it is is normal trying to still make activity that big well you know does that look yeah when people say oh it's exactly what they forecast like well of course it is because they went out and said hey to get this number we have to make this many tons of steel, go and make that many tons of steel.

6:49And so how about that? That many tons of steel get made. So there's both the figures getting massaged and the activity being effectively dictated to make sure the numbers are actually delivered. So somewhere in between there is the reality. Absolutely. So there's all of that. And then I have heard people sort of say, but they'll just stimulate. Yeah. As if that's a cure-all. And I come back to the point that – now, look, you've got to be careful here because there's been a lot of very bearish people on China for a very, very long time. Yes, exactly. Nothing's collapsed as yet. But there are all these ghost cities.

7:27There are these railway lines to nowhere. So, you know, the party could just say, hey, build another 10 cities for 20 million people. They could. They could absolutely do that, right? Now, but let's not pretend that that's okay. That's fine. There is always someone holding a bag somewhere, right? Because money has had to have come from somewhere to build those things or to stimulate in those areas that need to be stimulated. If there isn't a viable return on that expenditure, someone's lost out. now it might be that well no one's lost out because it's the government and the government just created the money it's like well we've still had to create that money and therefore that has stolen from everyone right because we've all all been diluted so there is economics isn't physics right like there are not hard fast laws you're dealing about human action here but there are certain realities that will come back to bite you if it wasn't the case we could all just say hey you know mr government give us all a million dollars hey probably it does it clearly doesn't work right and and it can work for a while and it can work when done very sensibly this is the whole keynesian kind of argument it's like well we stimulate when things are tough and we we we take a little froth off the top when it's not and we sort of help sort of balance kind kinds of things out but um but but that still does rely on sensible spending you don't say in a recession okay let's stimulate everything the the i think the example from the textbooks is well let's let's get everyone to put dollar notes in bottles and we'll bury the bottles because that will pay them to do that it costs a lot of money and then later on we can dig it up again when when it's needed it's like well that's technically economic activity and people have been paid and that That will boost GDP.

9:23Yeah, that's right. But there's nothing productive there. Yeah, correct. You've got to remember that someone has to pay the piper eventually at some stage. So what am I saying? So I'm saying that, one, it's a little bit disappointing that China hasn't bounced back as strong. That would have been great for all of us. Two, yes, they probably will stimulate. And yes, that'll probably be good. Three, you know, I don't know if it's the free kick that it is, but I'm also hyper aware that, you know, So it might take 10, 15, 20 years for the chickens to come home to roost as well. So I'm not crawling into the bunker at this point either.

9:59But it's forever interesting. What do you think? I think that's right. And I think if I have a – I'm a dyed-in-the-wool, card-carrying, Keynesian policy thinker, right? The idea of stimulating a sucking economy and retarding somewhat an overheated economy hopefully means that done well, there are fewer extreme events and fewer impacts on people. And mathematically, it's actually, you talk about the fact there's no economics isn't physics. You're absolutely right. Except that in a perfect world, I will backtrack on a little bit. In a perfect world, the model works, right? and so but it but it requires the model to be operated properly so maybe it's not not physics maybe it's a machine and again it's not even sounds like an argument for communism as i've made before like if only everyone did the right thing it would work wonderfully exactly right which kind of my point so but but so it's not it's not physics but it's more like a machine right we know if the machine is used a certain way you can do certain things with the machine and and it works and you know we also know that it makes more sense to for example run a machine at capacity even if you haven't got demand for it you stockpile some goods and then later you can you can do your maintenance while you got excess you can manage the machine so that you get the best possible economic outcome rather than saying well the machine will just work 25 hours a day some days and nothing the next day and 25 hours the next day you you plan for these things right every every every production plan uh goes into some element of keynesianism right well we're not going to sell much on a monday but by wednesday we'll need the stock so we'll make some extra and then we can make a bit less we're selling more on wednesday than we're making but that's okay because we'll catch up with that like these these kind of buffers and and and reductions of surpluses uh the whole area of inventory and stockpiling i mean these things make sense but they do have to be managed properly and to your point i do think it's as bad as communism but i think we are in a world where and we've talked a lot about this in the past i don't want to overdo the the kind of repeated um references to this stuff but we're in a world where the pollies aren't running the machine appropriately you've got this great machine the machine's been proven to have worked or at least i think i think fairly proven you know 90 odd years of keynesianism i think we can kind of say it seems to work i'm gonna i'm gonna i strong disagree but anyway continue and uh and we're in a situation where okay so now when you then start saying well that's a good machine but if we just run a little bit hotter for a little bit longer because we can and it probably won't break while i'm running it but then i'm gonna leave in a couple of years time and then some other poor bars are gonna have to take over the machine and try and work out why it's overheating and and try and fix it without causing problems in the meantime and having massive down times because you run the machine way too hot for way too long that that's my that's my biggest concern about the way the the economies are being i'll say economies plural because i literally mean globally there's a whole lot of politicians who are saying we'll use keynesianism when we want to get more good stuff but when it's time to kind of you know pay the piper to to to wind back production let the machines cool down we're kind of prepared to do that because that might hurt and it might be problematic that's why we've got interest rates that have gone from 0.1 to 4.1 both as low as 0.1 in the first place and as high as 4.1 now in australia is because governments plural both both stripes by the way have simply refused to actually follow the the textbook they've said i want all the good stuff i'll rip out the second half the textbook to pretend the whole actually we need to do something and make it work that's my that's my challenge i don't think i think this i mean it gets pretty theoretical pretty quickly the question is the model wrong or is the model being used badly at one level it doesn't matter because if the end result is the end result then that's the end result but it also is if we're going to say well there should be a better model any model we suggest should it's like the bloody modern monetary theory people right they want to credit this money and pretend it's all possible and there'll be people yelling at think they're very very passionate those mmt people and like yeah well it'll work because all we have to do is get politicians to increase taxes to to restrain inflation yeah never going to happen and that's right that's the killer blow exactly so so models that work maybe is it going to be used properly no okay so if we're if we're in the business of outcomes then the question really is which model is likely to have the best outcome in in reality as well as as well as in theory and it doesn't mean we can't expect or require or ask or or lobby our politicians to be better managers but so yeah sorry long answer mate i i think china's in some trouble i think uh by the way i think it'll come good because it's the it's the world's largest economy and it will grow over time because people want to improve their lives and i think you know for all of the criticism valid criticism of capitalism uh as much as china's a command state it's kind of a command capitalist state if those things can actually be true at the same time So I think the Chinese people and the Chinese government, for its own selfish purposes, will find a way over time to improve things there.

14:27And that should improve things globally. Whether we have some choppy orders to sail through, I think that's becoming increasingly likely. What's a bit – I'll get dark for a second here. What's a bit scary is that when you've got, let's say, one in four youth unemployed, you know what's a really good use for youth? That is dark, dude. Cannon fire. There we go. You know, and it's like, and you know what? You know what's really good use for stimulating? Like, let's build some aircraft carriers. Let's build some tanks. You know, we've got a whole bunch of unemployed kids that we can sort of put on the, you know, and it's really dark.

15:01But I mean, again, any student of history would sort of say it tends to be something that governments can sort of lean towards for a couple of reasons. One, because there is just the sort of empire-building urge that old men tend to, for whatever reason, have, particularly when you're guaranteed to continue wearing the crown. But it's also a wonderful way to distract the populace who are being increasingly impoverished from difficult economic scenarios as well. So who knows? I'm not calling for it, but it does tend to enhance the odds of that. And we've already seen a lot of saber-attling. So I don't know.

15:42I mean, economic prosperity is good for living standards, but I'd also strongly argue it's good for peace. Yeah, 100%. And you know what I mean? So it's just sort of like it's in no one's interest for things to get continually worse. So, you know, I don't know. we'll keep an eye on it is all we can go we will and look as as ever the question is what do you do differently or what do you do as a result i don't think there's anything you can or will do um i think i i will i will make a general comment which is just um a boring one and i don't care because boring is important um just just i be diversified in your portfolio um the people who say this happened over the past five years therefore this is the way to make money over the next five years in whatever fashion and i am i am literally talking about i own fortescue as i've said before but i'm talking about iron ore miners in particular here or miners in general the the whole exposed to china trade is great and maybe it's fine and i'm not saying you shouldn't own them what i am saying is don't don't do the whole china's taking so much strain and still these miners have gone fantastically well therefore they always must you know uh and the same with anything else same with pick your pick each category it's not not a ping at miners at all um it is just to say that you know don't put don't create a portfolio where certain preconditions need to be true now and forever for you to make money and it's a death or glory bet on a binary outcome right there's just there's that's not investing that's gambling speculating um you know just just just be mindful of that so you know if china recovers and it's all a non-issue then great if it doesn't well then you'd want to make sure your portfolio isn't completely exposed to that needing to be true even if you think it's going to be even if you think and this is the worst place well it should be true because i want it to be true those those are all fine just remember that the world doesn't have to do what you want it to do right the i don't want to go too far into the ethical investing thing again but i will say that ethical investors who say well i want the world to be clean therefore i'm going to invest in clean fuels because that will be the future i mean maybe it will and and i hope it will and you hope it will and that's all fine but just don't don't bet we just talked about you know politicians doing what they should be doing if you work the keynesian levers properly you do it you're doing fine except they don't so okay well then you need to allow for the world we're in not the world you wish was true because uh i wish i was a millionaire and i wish i was a millionaire because my wishes come true guess what those things aren't necessarily repeatable speaking of that did you see the latest um so when low had to front up to the estimates committee or whatever it's called that yeah the media love to report it as a grilling oh yeah And the politicians throw some stupid cheap shot, you know, questions at him.

18:28It's theatre. Oh, it is absolutely theatre. Pure theatre for the masses. Like, so depressing. Yeah. But, and you know, he was a gentleman about things. He said, like, everyone hates me, but like, you guys should probably take some, you know, he said it as politely as he could, but it was sort of like, well, everyone hates me because I'm doing what you guys need to be doing a little bit as well. Correct. What you left for me to do, when you knocked on the door and opened it, there was a burning pile of poo in a brown bag. What did you want me to do with that? You know? Yeah. And he said, it's really, really blunt.

19:05Yeah. All these people are hurting. And like, well, what else do I do? I've got one lever here and you're giving me no choice on it. And so I'm not going to be an apologist for a central banker, but I think he does make a really excellent point here. And this is the difficulty with just a little bit full circle with the Keynesianism, as you've touched on before. It's just like no politician who wants to stay in power is going to do the hard thing, the thing that needs to be done, the necessary thing, because it just doesn't get you elected. So it finds us in this very, very difficult scenario.

19:38With one exception, which is I am going to be Pollyanna and Optimist and all that kind of stuff for a while, right? That is absolutely true of the current circumstances we find ourselves in. But it wasn't always the case. I mean, pollies have always been self-serving, but they were decent people of very different ideological beliefs who had a vision for a better country and prepared to put their careers and beliefs on the line to try and make things better. And I am not going to give up yet. Maybe this is optimistic, maybe this is even stupid, but I'm not going to give up yet on our ability as a society to get back to that if we want it badly enough.

20:11So my call for our listeners is not to give up hope, is to say, you know what? Yes, they are self-serving so-and-so's often. and more often than they used to be i think it's absolutely true to say you're only going to have well you and i've been around for a while some of us have been around for longer uh you go back to the hawk keating howard years and very very different politicians all three of those guys but love more hate them they had conviction and they wanted to do a thing um the current lot generally not the current government only but the current lot of politicians generally are so desperately scared of being unpopular maybe losing a couple of votes in a focus group that they're not prepared to do anything i'm not i'm not convinced i'm not prepared to accept that we can't go back there.

20:46So I'm not giving up on the idea, but your point is absolutely valid, mate. I don't think since, I mean, geez, Kevin Rudd had some ideas, maybe pre-election and then got into the 24-hour news cycle and he kind of started that palaver that we've kind of had with every other politician in government since, the desperation for anything but losing power. I don't know. I'm an optimist, mate. I will remain an optimist, hopefully, until I die, but I reckon it's up to us to demand more from our pollux. Yeah, it's, oh gosh, this is slippery slope. But there is, have you heard of the fourth turning? Or the Strauss-Howe generational theory?

21:24Don't do this. Which is very quickly, I'll say. You're the bloke who doesn't believe in market timing and chart reading, right? Go on. I don't, I would never trade around it. But it's basically, nicely summarized by hard times make hard men. Soft times lead to soft men. Again, it's, again, unnecessarily gendered, but that's the same. And so what you have is that you have this, you know, let's go back 100 years, right? So the big world wars, horrible times, really, you need a crisis and people sort of stand up and reality kind of slaps humanity in the face. Like, we've got to make some tough decisions.

21:59We've got to do some difficult things. And you get this generation, our grandparents' generation, who went through all of that and were very, you know, averse to debt. worked very hard, saved very hard. You know, we had the leaders, the Churchills, that would never, ever get elected in good times. And then Churchill lost power after the war because people went, oh, we're bored of you now. We've had the war, let's move on. Absolutely, right? And so then that generation grows up and they have children who sort of solidify the advantages that are made. Then they have children and they're like, oh, life's really good, really easy.

22:36Oh, it turns out that, you know, this person over here is promising me bread and circuses I was like I'm going to go for that it's why I think I'm not saying I buy into this necessarily there's interesting ideas to it which is that we democracy tends to trend towards these cycles of sort of very difficult times crisis and then prosperity indulgence and then back to crisis again and if if you put any stock in that we're more towards the latter end of that where we're all just going for give me give me give me give me um you know i'm not making any hard decisions for the future we have these really weak um populist uh leaders um and it you know it it may lead to something that's just very difficult and again i've pointed out in the u.s in particular just how unsustainable they are on fiscally as a path it's just again And it's just maths here.

23:36I'm not saying I don't think anything. That's too controversial. In fact, extraordinarily objective in that point. And then it tends to lead to more of a dictatorial kind of leadership, or at least one that is much more hard-nosed when we get to the point where it's like, okay, we need to get serious, and we need an adult to enter the room here. And I guess you reminded me of it when you're talking about, well, in the past we've had these leaders. And I think, yeah, we probably did at the time. I look around at the political landscape now here abroad in the West in general. It's a clown show, frankly, from both sides.

24:12Let's talk about Albo's latest thought bubble in a moment. And I think that's what's probably different now. And we've all had it so good for so long that we may be sowing the seeds of our, not destruction, that's too harsh a term, but for more difficult times ahead. Yeah, I think so. I don't think anything you say is wrong, absolutely. and I think I tend to treat these things as descriptive rather than prescriptive. That is, you know, try to work out where are we and where are we going to be is I think a little bit silly. Like the Muggs game. I'm going to, again, offend a whole lot of other people.

24:45So the AMT is already hate me. Sad to now the fourth turning fans. Because it goes back to what we've talked before about the fact people just want to believe there's a cycle, there's a thing, there's something to believe in. If it's not God, it's not, it's market cycles. It's like, oh, that's going to happen next. But I think descriptively, I think that's 100 % right. in fact we've seen this in little micro cycles i don't want to pretend cycle little micro movements there's there's the again apologies for the gender um terms this is what's described as i'll come new name soon but the mummy daddy theory of politics um which is you know when things go well you want mummy right who's going to help you and give you nice things and that's dangerous to be the left and then when things are tough you want daddy to come and be a bit more stricter and say no no you can't do that this is what we're going to have to do it's kind of a version of the same thing and i've got to say mate if you think about australian politics um labor elected in 07 which was the absolute pre-GFC peak boom, right?

25:36Yep. They get elected again in 2022 when the COVID money is sloshing all around the place. We're through COVID. Everything's okay. And now I can kind of imagine a better future with, you know, a voice and other things. And I'm not going to get into any of that. But, you know, we kind of, when we're comfortable enough, we'd like to turn our attention to maybe making the world a better place. As soon as we think things are a little bit hard, we're like, yeah, I might just worry about me and my job and my taxes at the moment. thank you very much and so you did you tend and again there's people there who are always labor voters people are always liberal voters motivate you guys you're the rusted ons that's cool but the swinging voters in the middle who are like oh i think we probably need to be a little bit more serious right now let's let's go with the let's go with the the the man in the dark suit who promises to make my life better because it's gonna you know fix all the broken things and the good times like well let's go with a nice man over there in the in the in the white suit who's gonna you know promise me beer and skittles and roses and and everything else because we can and i want to be nice to people i think we all do so if i'm feeling comfortable myself i can afford to feel good about this stuff so let's go and do those things um it i i if you look at the last i might frankly even back to the early 80s frankly but but certainly the 90s and beyond that that's been that that's been the reality now since coincidence maybe is a predictive i don't know but it seems very clearly to me at least that you know you draw the economic cycles and you draw the the parties who are uh you know returned to power or or put into power um it's i don't know it's hard hard to ignore a hundred debate, I think.

27:01Yeah, yeah. Should we get back to business? Well, let's talk about the housing situation, right? So you'll do a better job of it than me. Lay out the latest policy announcement. Oh, man. See, look, I don't know. As much as I'm an optimist than I am, you also look at this stuff and think, you know whoever's in parliament or in power sorry just manages to really cause some troubles here's i mean i'm not going to try to describe it i'm going to read the first two paragraphs of the ifr article quote the albanese government has offered state and local councils three and a half billion dollars to fast track the construction of 1.2 million homes over the next five years in a bid to boost housing supply less than two months after giving the states a one-off two billion-dollar grant to immediately build a refurbished social and affordable housing prime minister anthony albanese put three billion dollars in performance bonuses on the table to encourage the states to accelerate land release planning and approvals processes to build well-located homes end quote um it was a million dollars this time last year now it's one point i'm sorry million homes now it's 1.2 million homes there was a meeting of so-called national cabot used to be called the chogam no it wasn't coag commonwealth of australian council australian governments uh now called the national cabinet because that apparently sounds better and the pollers like it more um well they all got together and said you know what we should really build more houses let's let's have a new target and some new money sloshing around and that'll that'll solve the problem um by the way the master builders association loved it as did the housing industry association color me surprised oh mate 1.2 million extra homes over five years so that's 240 ,000 extra homes a year extra homes a year um i don't know i don't know how many homes how many traders you'd build a home per year but i'm assuming there's not 100 ,000 traders who were just lounging around waiting for a call up from albo it was i'll look up never built at that pace i mean i'm in bali albo but give me a call as soon as you say the word we're gonna come build a quarter of a million extra somewhere god knows where but somewhere we're gonna be in the right place at the right time with the right materials and the right free workers aren't doing anything else and we're gonna stop what we're doing and build houses that's not gonna be inflationary at all i'm not gonna ask for more money uh the cost of building materials isn't gonna go up at all uh planning to planning approvals will be fine and look these things are all shovel ready not gonna take any time to to build and draft and change and knock down and prepare and i i just i don't uh i i'm i mean i'm an optimist but i'm also i'm also a skeptic and i just think that the the ridiculousness of this idea um i i bagged the last government a million times in this podcast you know that i listen to that as well but fair dinkum mate if i'll be keeps announcing stuff that can't be done for the sake of a press release i don't even know i don't even know you know again right when governments tend to like oh private enterprise will fix all let's just throw them some money um left when governments tend to like five-year plans with big amounts of money and proposals and plans and programs but it is is it not just complete window dressing what what am i missing no it is it's come i mean this is what's so infuriating about it is that the the lack of basic economic literacy amongst our elected leaders oh but it's not that mate it's not yeah you can't believe they don't know surely well that's what's so much that's even more depressing i know even if they don't know i mean i would i would look when you've got the reins of power i mean how can you possibly be an expert and all the things you need to be an expert on unfortunately you don't have to be because you have advisors who are and and you know and they will or maybe some some uh uh consultants as the case may be more lately um again let's not go there uh so you would at least sort of say you know you can imagine the king's court right hey you know your majesty there's a there's a problem okay and then you bring the wise men in and they'll say well your majesty here's here's some solutions and you can sort of make your your your best judgment on all of that and you go that's all really interesting but if i say this the people will really love it exactly and and i guess you know go go well i was gonna say here's here's the you know the thing that no one will say is the reality is and i've i've certainly been happy to say it before and i'll say it again what i want to do is this impossible task of making housing much more affordable for everyone by not making everyone's houses because a lot of us have houses yeah a lot of us have multiple houses i say us not me as people well know but but um i don't want your house to go down because that's where all your wealth is stored but i want it to be more affordable i mean it's just it's an impossible you cannot square that so i want it to be the same price but also more affordable at the same time okay how does how does that work it doesn't work it's impossible to kind of work and so as you rightly said there's there is a pragmatic angle to this it's like i i think people have been building as far like you don't need to convince a developer to build more right particularly when they can flip it for what they can flip it for and build it really dodgily and all the rest of it and and and they've been going you know hell for leather and it's still and here's the other thing too and this is let me say right at the outset that i am very much a um uh big australia kind of person i think um immigration we're a country of immigrants and i think it strengthens us and the rest of us but when you've got 400 000 people coming into the country a year i know you know what where you know okay you're building all these houses still not enough to keep up with demand yeah right it's just again you can have ideology but it's always a real maths is a really good foundational it's physics it is an absolute it's an absolute discipline like there is no there is no yeah yeah you can't you know there's there's no i can't make one plus one equal three no matter how much i try that's the beauty of of maths right no no it's all my kitchen they're better than that we're in trouble right yeah you know and so you've got you've got what's the vacancy rate on rentals is like historic lows like one percent in sydney and places like that um you're not nearly building enough houses where you are building it it's not nearly in the places where they often need to be and you've got 400 000 people coming you just it's you've got basically a city the size of canberra entering our country every year every year right right and it's just like, well, you need to start building 400 ,000 houses a year or apartments or whatever it is a year just to, and it's no good to build that in the middle of the Simpson desert, right?

33:50Like it needs to be where people actually need to work. And so it's, so it's all, it's all a farce. It's all a show. It's all horribly depressing. This comes back to the earlier thing that we were sort of touching on is that the true solutions are very painful, really painful, right? And it's going to result in a lot of people copying and feeling some pain and and no politician is going to do that like there's not not anyone that's sensible enough that wants to stay in power so we're going to go on our merry way we're going to have ridiculously unaffordable housing um and we're we're not going to do anything about it you know there was a great there was a great i'll um bit in the where was it it might have been the wall street i mean quick i've got it here uh i think it's the wall street journal they they did this piece where they said six only 16 of californians can afford to buy a home yeah they just did it on some basic mass i'll give a shout out here to tarik brooker the avid commentator on twitter he basically just did it for for australia and i haven't i haven't i haven't verified the figures for myself so maybe you got it wrong but he basically said assuming that people need a 20 deposit assuming they take a 30-year mortgage assuming that people have to pay property taxes pretty safe assumption and assuming that they'll have to dedicate 30 of their income to servicing uh housing this is this is on a pre-tax basis now you can argue that i don't know people people will be able to dedicate much more of that but he's just he's chosen those numbers to replicate the stuff give us some assumptions And it says that for Sydney, a household, so two people in most traditional households, will need to earn$326 ,000 to afford the median-priced home.

35:37Not the one on the harbour. The median-priced home. For Melbourne, it's a bit better. It's$220 ,000. But they're staggering, staggering numbers. And so I don't know what to do. We can do it for a time when banks are throwing credit at us, right? When everything is purchased on equity, mate. But when you actually come to the hard, put your nose to the grindstone here of what is the economic energy that needs to be expended for you to shelter yourself on a median home. Again, not saying a five-bedroom McMansion somewhere. I'm just saying the median sort of home. You and your partner need to be pre-tax on$326 ,000 a year.

36:26Now, I don't have to guess at what the numbers are because the ABS publishes it. And I think last time I checked, I think the median salary is something like$80 ,000 per person. I think in Sydney, it might be a little bit higher. But on a household basis, you're sort of looking at around$130 ,000 to$150 ,000 a year. So it's like not even close to half what it needs to be there. And again, there's a mathematical argument that's just going to suggest that this is not sustainable. So again, does this mean that everything's going to crash and spiral into some horrible kind of outcome? Maybe, but not necessarily.

37:03But my argument as and remains, and is a high conviction, is that for it to continue to grow, I think too many of us just go, oh, property doubles every 10 years. Well, does it? Okay. I mean, just do the maths on that. So now you might – there are people out there who will go, well, actually, I think$326 ,000 in household income is actually unreasonable because people should be able to dedicate 60 % of their money to housing themselves. Okay. But whatever. But okay, let's grow that by 7%. I mean, you fold a piece of paper 42 times, you're at the moon, right? Like these things compound up to very high levels, and it's just going to be increasingly harder.

37:43you've got a bungee cord tied to a pole and you're walking left right and it's getting a bit taut it's getting a bit tauter can you walk further further probably can you try harder probably but at a point it just gets where it's sort of like it's like approaching the speed of light like the closer you get the harder it gets to go in any faster and i just it i just despair at the whole situation give me some give me some optimism here um no um look i guess that's where your kind of key thought and my key thought and kind of where they'll coalesce right which is let's say we have housing which is borderline slash over the border of unaffordable and we have vacancy rates which are reasonably tiny and that's kind of the same thing right why white house prices are high because there's more demand than supply then let's say we're adding 400 ,000 immigrants call it 300 or 200 ,000 doesn't really matter by the way 400 ,000 people a year coming into the country for a decade makes Australia 25 percent bigger there's if you've seen 25 percent more dwellings in your suburb or the suburb across good luck to you because they're going to have to go somewhere right and that's this is and I'm not as much of a fan of big Australia as you are um again let me be really really clear I have nothing against immigration or immigrants at all I don't care where they come from as long as they're appropriate for our country um we we can and should have a responsibility for refugees so that's all that's all true i'm not i'm not a zero immigration guy i am a guy who says hey there's a natural limit and i don't know where that is but we should be talking about what that is um for planning societal cohesion environmental reasons frankly my biggest issue is environmental right now um we know that dams around the country during the last el nino were you know effectively at zero in many places including country towns where people say send me out to the bush there's plenty of space out there Well, there is, but there's no bloody water.

39:32So, you know, good luck to you if I don't know what you think they're going to drink. So, you know, my biggest issue was probably environmental. But not in any of these cases, the conversations around the societal outcomes, not the economic ones. People said to me, oh, we need immigration because it can be growth. Well, if we're all having a smaller piece of a larger pie, guess what, dude, that's profitless prosperity. That's a complete waste of time. So let's have that conversation about how big in Australia do we want? How many people do we want? and when, where will they go and can we house them?

40:02What impact does that have on us as current residents, citizens of Australia, and the house price problems you just talked about, mate? House prices don't come down until we have less demand or more supply or both. Because that's economics 101, literally. That's how the market's supposed to work. That's about as close to a law of physics as you get in economics, really, supply and demand. It really is. I mean, there's substitutes and other things, but that's represented in that line, right? So what do you do? i mean phil lowe i can't love him i i do lie i do like phil lowe he really shouldn't be giving public pronouncement he said people should move in with their friends and you know i mean it was it was not read the room dude read the room and you know what it wasn't this is the thing it wasn't even wrong it was just silly and in the context of a click by a clickbait gotcha media uh you know he really should have thought about what he said but i you know the the the thing is that was that was the other side of the supply demand thing and this is as you said what lowe didn't say by the way can you imagine having to front the senate you've been your boss has given you the the backside he's given you the wrist all you're out and you've still got to go to parliament and answer the bloody you know um shouting senators and and and representatives who just want their five minutes of of fame being reported in the papers as they said something nasty to fill low i don't know is there a worse when have you given notice to a company last four weeks you're working out it's like oh this is just i hate this and it's boring terrible and can't this be over please fill low's got that and he's got to go and speak to senate estimates on a bloody you know live stream around the country um but you know that that's supply and demand his point was prices will start coming down when people choose to not create new households and household sizes get bigger because they're responding to prices he's not wrong he's describing supply and demand just as we just did um the fact that he said it in the way he said it was just yeah not not not particularly great but is that but is that is that as you said is as close to a law as it gets supply and demand that's what's going to happen and yeah alba saying we're going to build you know apparently 240 000 extra houses somehow magically out of thin air um it strikes me as bob hawks no child living in poverty kind of comments like yeah either he'll be out of politics he won't care or he'll be in politics and he will lose that election because people look back and say dude where are you 1.2 million homes oh well it's the states well you were kind of you know it's your plan your announcement what the hell are you doing uh just you know what i can't get mate i i would probably be a terrible politician because i'd look at this someone say what you should say is this i'm like but dude it can't happen in five years time i'm gonna have to be accountable for that so why would i say that thing now they don't think about that they worry about today and next week and they'll worry about the future when it comes but you know hawks hawks no no child living in poverty thing and plenty of others it's just a keating's recession we had to have they're made absolutely made for you to be hung by your own potard and and i'm not surprised that it happens i am surprised i keep doing it just it strikes me as i know they've got to say something i know They're expected to do something, but it just feels bananas.

42:52I mean, I will say I agree that we need more supply, right? Like let's start making moves towards that. Let's have a real think about how we want to do that exactly and do it in a sustainable way and do it in a way that I often walk around my suburb. I work from home, so I do walk a bit because otherwise I just get deep vein thrombosis at my desk. And you look at the houses built in the last 10 years, they're already sort of falling apart. And then you pass these lovely 60s bungalows and stuff and like they need a little bit of love, but they're as solid as a rock, right? And like, they're like 60 years old and they're just going as strong as ever.

43:33And I feel as though there is something to be said for, there's a false economy, I think at play. Not only you mentioned before of like these building materials and costs going up a lot. And it's just like something feels broken when that can be true. And yet the quality of all everything think that we're building is going down so even of the supply that we are creating we just seem to like have no imagination beyond two-bedroom units as if like every family in the world is going to live in a two-bedroom unit next to the airport it's like well i'm not saying everyone needs a four-bedroom house on a quarter acre block but they're a town there's there's a lot of there's a lot of in between in in there um but just anyway so what i'm really saying here is is that yes you're right to sort of talk about supply that is absolutely the case but it's got to be realistic it's got to be done in a in a um uh and it's got to be balanced against the kind of demand that we are creating we do have control over the demand to some extent and there are a million other things that we could do we have so much control over the demand that that the thing that gets me mate for all of whether we believe in a bigger strategy or not that's a that's that's a bigger policy question right literally right now i can i can i read my this is i i'm often not super proud of my tweets i think this one was one i i'm pretty sure i got it roughly right right and talking about the the price of housing i like kind of stuff i'm just here's what i wrote i said if you had more people coming into stadium australia last night than you had seats for you might announce a 10-year plan to build more seats but in the meantime you'd probably limit the number of people entering the stadium yep yep i just think it's harder than that i just don't think it's hard i'd argue with it though right isn't it like and again you can say hey let's build a thousand seat stadium we can have an argument about whether that's the right size for a stadium let's do that but in the meantime you you want the right number of people for the seats you've got i just i just don't these aren't these these can be concurrent conversations but there's a temporal reality um here's me using big words there's a reality about the time like chronologically you know um i'm gonna build a house for five people okay well house isn't built yet so having those five people is not a good idea yeah good point okay let's let's build the house and then when it's ready or almost almost ready you know we're ready in a couple of weeks then great open the doors open the gates let them in great good job well done that that's how you balance supply and demand to to do the reverse it's just i i have to i i can't i don't get too much of the politics mate i i don't believe they don't know so i have to i have to believe that either they're doing it because they want the the economy in quotes to grow and be responsible for that and somehow dig themselves out of a problem that they'll create if it doesn't happen or they are so scared to talk about population because it becomes immigration because then it becomes you know paul and hansen um xenophobia and and ignorant racism i don't know i don't know why if you're a poly this is such an unspeakable reality even in the if you believe in a 50 million australia which is not my thing but might be your thing in either way even if you do to then say so we should not make any change in the short term because of the current problems what i don't know i just i really honestly what am i missing what what's what's the well if i was a cynic and i was saying that one third of australians own their house outright another third uh own it part so the majority of australians have got skin in the game they're on the property ladder and they're on the ladder they're on the ladder they're not oh don't get me started so i kind of if i'm in that bucket you know it's what i said this guy just nailed it on the i don't remember what network it was but i was watching the news once and they were interviewing some a new homeowner and he was saying you know i used to be all about prices coming down but now i want he just he just he said it it was a real aussie kind of way and i just thought oh man you've and it's he's right yeah he's right you know it's like any futurama fans will know too there's an episode there where they um they they float the company and it's like you know all of a sudden I've got an opinion on the capital gains tax.

47:41It's sort of, and it's all of this stuff, if you want to sort of look objectively from a higher level and what sort of needs to be done in aggregate to make sure this, that, and the other, you can sort of have a certain view. And maybe I'd like to think that's the way we're coming at it. But if you want to come at it as in like, you know, make me richer, actually stimulate a bunch of demand. I'm on the ladder, right? I've got my foot on one of the rungs here. Keep it going up. How do you make it keep going up? Just increase demand. Increase demand. Which is why, again, my long-held belief is the RBA will roll.

48:20They will roll. They will have to roll, and they will do it at the cost of other areas because the phrase too big to fail was a term that sort of came to the fore in the GFC. It's the same with the housing market now. It is too big to fail. all of our major banks would be in massive trouble if it did the entire country would be in all kinds of pain if it did that would have ripple ripple on consequences for all kinds of things we can't let it fail and not only that well you know if you want to make people feel rich well not not the not it's not it's more than a third actually because it's a third of people um who are who are renting but there's others that are much newer on the ladder and don't benefit as as much because I don't have as much equity.